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ENFORCEMENT OF THE LISTING RULES – POLICY STATEMENT
The Enforcement of the Listing Rules by the Exchange
Under section 21 of the Securities and Futures Ordinance, the Exchange has a statutory
duty to ensure, as far as reasonably practicable, an orderly, informed and fair market for the
trading of securities listed on the Exchange.
In discharging this statutory obligation, the Exchange enforces the Listing Rules, and
cooperates with the statutory regulator (the SFC) and other law enforcement authorities in
their enforcement work which concern listed companies. The Exchange will continue to,
amongst other matters, support the work of the statutory regulator.
Enforcement of the law will take priority over that of the Listing Rules. The Exchange will
report conduct which may amount to possible breaches of the law to the appropriate law
enforcement authority. Although in the majority of such cases the Exchange will continue
with its own investigation of the relevant conduct, depending on the circumstances of the
matter, which may include possible prejudice to the investigation or action of the relevant law
enforcement authority, the Exchange may temporarily suspend its own investigation or
action.
The Exchange is committed to enforcement of the Listing Rules. Through its enforcement
actions, the Exchange seeks to deter future breaches, educate the market, influence
compliance culture and attitude, and enhance corporate governance.
Each year, the Exchange investigates conduct which may give rise to breaches of the Listing
Rules where identified (whether during the process of monitoring compliance with the Listing
Rules, referrals from other regulatory or law enforcement bodies, or complaints from the
public).
Depending on the conduct involved and the facts and circumstances, a variety of regulatory
responses to the conduct may be appropriate. Regulatory responses include taking
disciplinary action against issuers and their officers for serious breaches, or issuing a
warning or caution letter where, for example, breaches are minor or no breach is established
but the conduct involved does not meet the expectation of the Exchange. Where appropriate,
we may direct issuers to appoint compliance advisers for advice on future Listing Rule
compliance matters or for carrying out internal control reviews, or require directors to
undergo training on Listing Rule compliance matters and directors’ duties. We may also
make referrals to other law enforcement or regulatory bodies for conduct which falls within
their jurisdiction. If the circumstances justify, the Exchange may direct a trading suspension,
and in exceptional cases, cancel the listing of the issuer.
The Exchange focuses its resources on pursuing the most blatant and serious conduct with
a view to utilizing its existing resources to the best regulatory effect. This conduct tends to be
cases where some form of public sanction may be warranted against the parties whose
conduct is responsible for the breaches.
Factors against which the appropriate level of enforcement action is considered
Where the conduct justifies it, the Exchange will not hesitate to take appropriate action
against the relevant parties, including those responsible for the conduct. The decision as to
the level of regulatory response and whether disciplinary action is appropriate will be guided
by the following non-exhaustive factors:
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•
the nature and seriousness of the possible breach;
•
the circumstances and manner in which the conduct giving rise to the possible
breach was committed;
•
the conduct of directors and senior management, e.g. whether they have acted
deliberately, recklessly, negligently or otherwise egregiously;
•
the market impact and prejudice (or risk of prejudice) to investors as a result of the
possible breach;
•
any personal benefit accruing to the parties responsible for the possible breaches
and its magnitude;
•
the post-breach conduct of the relevant parties;
•
whether the directors and senior management implemented and maintained
adequate and effective internal controls;
•
whether the possible breach reveals serious or systemic weaknesses or failings in
the issuer’s procedures;
•
the level of cooperation received from the issuer and its directors during the
investigation of the conduct;
•
the compliance history of the issuer and its directors; and
•
any other mitigating or aggravating factors as outlined in the “Statement on principles
and factors in determining sanctions and directions imposed by the Disciplinary
Committee and the Review Committee” attached to the current disciplinary
procedures adopted with effect from 13 September 2013 (published on the
Exchange’s website).
Role of the Listing Department
The Listing Department is responsible for conducting investigations into possible breaches of
the Listing Rules. This is primarily by way of inviting written submissions from listed issuers
and their directors to explain their conduct in question, and to provide relevant information
and documents. Meetings with directors or officers of issuers will be conducted where the
Listing Department considers that they would facilitate and expedite the investigation
process.
At the conclusion of the investigation a decision will be taken as to what, if any, disciplinary
action is required. The matter may be disposed of by warning from the Listing Department.
However, where disciplinary action is taken, the Listing Department will act as the
“prosecutor” and present its case to the Listing Committee for a ruling.
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Disciplinary proceedings before the Listing Committee
If disciplinary action is taken, the Listing Committee is the decision maker as to whether the
parties subject to disciplinary action have committed the breaches alleged and of the
sanctions to be imposed, if any.
The Exchange observes the principles of natural justice and due process, and ensures that
the parties have the right to be heard. The disciplinary process is primarily by way of
exchange of written submissions to be followed by a disciplinary hearing before the Listing
Committee at which the parties have the right to make supplementary oral representations
and the obligation to answer any questions which the Listing Committee may have.
To expedite disciplinary proceedings and ensure that regulatory outcomes are delivered in a
timely and efficient manner whilst balancing the need for fairness to the parties subject to
disciplinary action, the Listing Committee has revised its procedures. Central to the current
procedures is enhanced case management powers for the chairman of a Listing (Disciplinary)
Committee who can make any directions concerning the conduct of the proceedings for the
just and expeditious disposal of the matter. The current procedures also seek to reduce the
number of written submissions to be filed as a matter of course during the disciplinary
process and to encourage earlier hearing dates. Delay in filing submissions and unjustified
postponement of hearing dates will not be tolerated. The granting of time extensions will not
be the norm, but only in exceptional circumstances and in the interests of fairness. The
Listing Committee will not permit excessive and extensive delays against the efficient and
timely delivery of regulatory outcomes, as this is not, it is believed, in the interests of the
investing community and the market.
Sanctions available to the Listing Committee
The sanctions which the Listing Committee can impose, upon making findings of breaches,
are listed in Main Board Listing Rule 2A.09 and GEM Listing Rule 3.10.
They include, amongst others, a reputational public sanction of two levels of severity (public
censure and public statement of criticism); and where there is a wilful or persistent failure by
a director to discharge his Listing Rule responsibilities, a public statement that the retention
of office by the director is or would have been prejudicial to the interests of investors.
The Listing Committee may also direct remedial action to be taken, and deny facilities of the
market to an issuer in cases of wilful or persistent failure by the issuer to discharge its
responsibilities under the Listing Rules. These rules also confer power on the Listing
Committee to direct a trading suspension, and in exceptional cases, cancel the listing of the
issuer in appropriate circumstances.
The Listing Committee seeks to punish past conduct with the application of the sanctions
available but of equal importance is to ensure improvement in the future and enhance
corporate governance:
•
To punish past conduct, the Committee may, amongst other things, impose a
reputational sanction; and
•
to ensure improvement in the future and enhance corporate governance, the
Committee directs remedial actions, e.g. internal control review, appointment of a
compliance adviser for consultation on future Listing Rule compliance matters, and
directors’ training on Listing Rule obligations and directors’ duties.
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In determining the sanctions for Listing Rule breaches, the Listing Committee will seek to
achieve consistency, and may refer to the sanctions guide attached to the current
disciplinary procedures.
The settlement of disciplinary or prospective disciplinary action is encouraged in accordance
with the statement published on the Exchange website in 2007.
Reminders
In the context of the operation of the Listing Rule enforcement regime by the Exchange,
directors and senior management of listed companies are reminded of the following matters:
(a)
Collective and individual responsibility of directors
The collective and individual responsibility of directors for compliance is a cornerstone of the
Exchange’s enforcement regime and is clearly established by the Listing Rules. The
Exchange also expects directors to fulfill fiduciary duties and duties of skill, care and
diligence to a standard at least commensurate with the standard established by Hong Kong
law. This obligation is refined and re-inforced by the personal undertaking given by the
directors to the Exchange to use their best endeavours to procure Listing Rule compliance
by listed companies. This obligation encompasses a dual responsibility for ensuring
substantive compliance with the Listing Rules and creating the conditions for compliance
through the creation of appropriate internal controls.
Executive directors who have executive and management roles and responsibilities within a
company obviously have a crucial role to play in procuring the company’s Listing Rule
compliance. However, non-executive directors (including independent non-executive
directors) also have an important role to play. Not only are they expected to give the board
the benefit of their skills, expertise, varied backgrounds and qualifications, and exercise their
independent judgement in making decisions for the company, they also have responsibilities
to procure the company’s Listing Rule compliance. Like the executive directors, they are also
required to take an active interest in the issuer’s affairs and obtain a general understanding
of the issuer’s business, and must follow up anything untoward that comes to their attention.
(b)
Adequate Compliance Controls
It is important that all directors and senior management take steps to ensure that issuers
have sound and effective systems in place to support and achieve Listing Rule compliance.
The Exchange would remind directors that the Corporate Governance Code contains code
provisions to the effect that the board should oversee the issuer’s risk management and
internal control systems on an ongoing basis and ensure that a review of the effectiveness of
the issuer’s and its subsidiaries’ risk management and internal control systems, covering all
material controls, including financial, operational and compliance controls, has been
conducted at least annually.1 Past disciplinary decisions illustrate that the Listing Committee
takes a very serious view of those directors who fail in this respect.
(c)
Training and Education
A sound knowledge and understanding of their obligations is important. The Corporate
Governance Code also contains code provisions conveying the expectation that directors
should receive briefings and professional development necessary to ensure that they have a
proper understanding of the issuer’s operations and business. Further, they should also be
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fully aware of their responsibilities under the Listing Rules, all relevant legal and regulatory
requirements and the issuer’s business and governance policies.
The Listing Rules and corporate governance obligations change and develop over time.
Directors and senior management are therefore urged to keep abreast of changes to the
Listing Rules through regular training in the interests of good corporate governance and the
performance of their obligations to the Exchange and the wider financial market.
First published:
13 September 2013
Revised on:
17 February 2017
Note:
1.
This reflects changes to the Corporate Governance Code which took effect for
accounting periods beginning on or after 1 January 2016.
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